The Facebook Effect: Nasdaq Hit with 2 Downgrades

By Avi Salzman

Everyone who touches Facebook (FB) turns to dust. That’s clearly the lesson of the past week.

Not only are regulators looking at Morgan Stanley’s (MS) actions prior to bringing Facebook public, but analysts are now questioning whether Nasdaq OMX Group (NDAQ) will suffer because of glitches on Facebook’s first day.

Nasdaq has been under the microscope since the IPO was delayed on Friday and some traders had to wait hours for confirmation on whether their orders had been taken. Analysts started to question the long-term damage of the flubs shortly afterward, but the drumbeat of negative feedback is picking up. Raymond James analyst Patrick O’Shaughnessy writes that Nasdaq’s liabilities could grow. He downgraded the shares to Market Perform from Outperform.

“Although NASDAQ’s legal liability is only $3 million, we now anticipate that NASDAQ’s board may be willing to provide substantially more compensation to harmed parties and we expect that investors will approach NASDAQ’s shares cautiously until we have clarity on the final amount of financial accommodations. In addition, we expect investor lawsuits against NASDAQ may provide an additional overhang on the firm’s shares, despite the indemnification we believe NASDAQ enjoys via SEC regulations. We believe most of the downside should play out in the next two to three months.”

“[W]hile the FB issue will likely weigh on NDAQ in the near term, the combination of lowered expectations, a pick-up in volumes, OI & volatility, & the longer term growth opportunities, makes ICE more attractive.”

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.